Smoking’s down, but tax revenues soar

OLYMPIA – Smokers in Washington are getting lonelier.

But thanks to state efforts to make it harder to get untaxed cigarettes, including a pending agreement with the Spokane Tribe of Indians, smokers are still paying plenty of taxes.

A new study by Washington’s tax agency says cigarette smoking in Washington fell 29 percent over the past decade, “due to a combination of higher taxes, a more educated and affluent populace, anti-smoking efforts and tribal cigarette compacts.”

For years, state officials have believed that Washingtonians smoke less: about 86 percent of the national average. The Department of Revenue study, “Washington State Cigarette Consumption Revisited,” suggests that smoking here is about 79 percent of that rate.

Despite the declines, the state continues to collect more in cigarette taxes than ever before: from $128 million to $436 million annually in the last 13 years. The biggest reason: a series of big tax increases on smokers, most recently the 60-cents-a-pack hike in 2005.

But state regulators say they’re also optimistic about efforts to curtail illegal tax evasion by smokers. Although Internet sales remain a major problem, they say, tribal sales of untaxed cigarettes have plummeted.

For years state agents played a cat-and-mouse game with tribal smoke shops, tracking and seizing truckloads of untaxed cigarettes en route to sovereign reservation land. But starting with the Olympia-area Squaxin Island Tribe in 2001, Washington has been making deals with tribal leaders. The latest tribe seeking such a compact: The Spokane Tribe of Indians.

The tribes typically agree to phase in, over three years, a tribal tax equal to what the state would charge in cigarette tax, $2.02 per pack, and sales tax. This erases the big price advantage that smoke shops enjoyed for years. But it also makes their non-Indian customers legal buyers. And the tribe – not the state – keeps the tax dollars for tribal government services.

The result: many non-Indians who used to go to a reservation to quietly stock up on smokes now no longer have a financial incentive to buy elsewhere. So at least some of them are apparently buying regular taxed cigarettes.

“The playing field has been leveled,” Leslie Cushman, deputy director of the state Department of Revenue, told a Senate committee Thursday. “It’s generally a success.”

In Spokane, some smokers still drive to Idaho where tobacco taxes remain far lower.

So far, 19 tribes have signed compacts with the state. Senate Bill 5380 would allow the state to start negotiating a similar agreement with the Spokanes. A small tribe on the Olympic Peninsula is also likely to be added to the bill, deputy tribal legal counsel Scott Wheat said.

“We do know that we are seeing more state cigarette tax stamps being purchased and cigarette tax revenue is up,” Cushman told the committee.

The state estimates that Washingtonians illegally dodged about $200 million in cigarette taxes last year. But Department of Revenue researchers believe the share of those illegal purchases attributable to tribal smoke shops has dwindled from about 68 percent to about 15 percent in recent years, according to Revenue spokesman Mike Gowrylow.

Sales of untaxed – or lower-taxed – cigarettes over the Internet or through mail-order remains a major battleground for state tax agents. The Washington attorney general’s office has started forcing Internet companies to cough up client lists, and nationwide legal pressure has caused some credit card companies and some shippers to refuse to serve Internet cigarette sellers.